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Social Security politics may be bad economics

Posted: Sunday, September 09, 2001

By TOM RAUMAssociated Press Writer

WASHINGTON -- Many economists suggest politicians have it backward, that this is the time to be spending the surplus rather than hoarding it. And, they say, that includes the Social Security surplus if need be.

Despite the longest economic slowdown since the 1991-92 recession, leaders of both parties have, so far, stuck by a pledge to fence off the Social Security trust fund -- even if it means a new round of government austerity.

Top economists and some members of Congress say this does not make economic sense. They cite the orthodox prescription for offsetting a sinking economy: cutting taxes and increasing government spending.

''You spend the money in the bad times and you save it in the good times. And the budget should be roughly balanced over a business cycle, not necessarily year by year,'' said David Wyss, chief economist for Standard and Poor's.

''Of course, politics usually don't have a lot to do with economics,'' Wyss said.

But the state of the economy has everything to do with politics.

History shows that the president's party loses seats in Congress in midterm elections and that voters tend to blame the president for bad economic times.

With Democrats clinging to a one-vote majority in the Senate and Republicans holding a 10-seat majority in the House, the stakes in 2002 are high.

Democrats blame President Bush's 10-year, $1.35 trillion tax cut for the fading black ink, and suggest Social Security reserves are in jeopardy. They say his tax cut has bared the government's cupboards, leaving little room for his proposed increases in defense spending.

Both parties fear being portrayed as doing anything to threaten Social Security with an election year approaching.

Thus Social Security politics, not economics, are likely to drive the budget battles of the coming weeks.

''At least on bipartisan basis at this level, there is no desire, no willingness to tap into the Social Security trust fund,'' Senate Minority Leader Tom Daschle, D-S.D., said after a meeting with Bush. The president later promised to hold up his end of the pledge: ''We can work together to avoid dipping into Social Security.''

Bush gives himself a big out, however, saying that a full-blown recession would be an exception -- as would war. His administration is forecasting an economic rebound next year.

Projections by both the White House Office of Management and Budget and the nonpartisan Congressional Budget Office show that the non-Social Security part of the surplus essentially has evaporated.

Former Labor Secretary Robert Reich is among those arguing that the focus should be on spending money to stimulate the economy: ''Don't worry about the Social Security surplus, please!''

Late last week, Sen. Pete Domenici, R-N.M., the senior Republican on the Senate Budget Committee, questioned why the Social Security surplus could not be tapped to help pay for education and other important programs.

He said he had talked to 15 economists, and all thought locking up the Social Security fund in a time of declining growth was bad economics.

Using small amounts of Social Security funds to finance other programs has no effect on the program's solvency or ability to pay benefits. Furthermore, overall surpluses are still expected to hit near-record levels for the next few years even with the economic slowdown.

The Social Security trust fund exists largely on paper. Instead of real assets, it contains unmarketable government bonds -- essentially IOUs. Unless otherwise earmarked, surpluses that flow into the fund are now used to help pay down the national debt.

''We're into the Social Security surplus every year. It's only a question of what we use it for -- do we use it for debt repayment or for any other purpose,'' said Mitch Daniels, Bush's budget director.

So far, those who say it is OK to breach the Social Security trust fund are in the minority.

Bush does not want to be accused as his father was in 1992 of ignoring the domestic economy -- and hopes his tax cut will provide the stimulus needed to lift the economy from its yearlong doldrums. Nor does he want to be blamed for breaking a pledge on protecting Social Security.

And how much longer will the economy continue to languish?

''I guess if I knew the answer, I'd be an economist, not the president,'' Bush answered.

EDITOR'S NOTE: Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.